A:

The act of manipulating, building on, and/or designing and constructing new uses for real estate is known as developing. Those that engage in real estate development are called "developers." Developers purchase land and either create or renovate the property, risking their resources and capital in the hopes of investment reward.

Sometimes real estate development is undertaken as a public works project, in which case it is not viewed as an investment in the classic sense. The government engages in public works development in order to benefit certain communities, put idle laborers back to work, or sometimes to just maintain a certain budget size.

For private developers, real estate development is a long-term, entrepreneurial undertaking. The developer must believe that the newly designed and designated real estate will have sufficient value (and meet sufficient demand) to compensate for the time, labor and other resources devoted to the project.

In urban areas, development is often restricted by community zoning laws. This is because most city and county government planners engage in Planned Urban Development (PUD), which segregates the uses of real estate (commercial, residential, recreational, etc.) into different "zones." In order to change the use of a property, developers must usually receive permission from city planners.

In the most general sense, real estate development is simply the mixing of one's labor with the land in order to achieve a predetermined end. In complex modern society, however, real estate development requires knowledge of financing, legal restraints, business and market forecasting, and project supervision.

RELATED FAQS
  1. What does asset management mean in regards to real estate?

    Find out what role asset managers play in the real estate markets, how real estate portfolios are selected and why entrepreneurial ... Read Answer >>
  2. How does the risk of investing in the real estate sector compare to the broader market?

    Learn about the high volatility of the real estate sector and how conservative investors gravitate toward real estate investment ... Read Answer >>
  3. How much of the global economy is comprised of the real estate sector?

    Find out how much of the global economy consists of the real estate sector, including output from commercial and residential ... Read Answer >>
  4. What are the most common mutual funds for investing in the real estate sector?

    Obtain information about some of the most popular mutual funds that investors can consider for investing in the real estate ... Read Answer >>
  5. How do I invest my IRA in real estate?

    Investing real estate in an IRA is one way to fund an investment account. For investors who choose this route, certain rules ... Read Answer >>
Related Articles
  1. Investing

    10 Habits of Highly Effective Real Estate Investors

    The best real estate investors all share these traits and practices.
  2. Investing

    Can Real Estate Stabilize Your Portfolio?

    History suggests that real estate can provide diversification and a hedge against inflation.
  3. Investing

    Real Estate Vs. Stocks: Which One's Right For You?

    There are ups and downs for both real estate and stock investments, so before diving in, know the differences between the two.
  4. Financial Advisor

    How to Invest in Real Estate Without Buying Property

    Investing in real estate can require more capital than most investors have available, but there are options to invest in real estate for less.
  5. Investing

    The Risks Of Real Estate Sector Funds

    Discover the risks and rewards of investing in real estate funds, as well as some of the best and worst performers.
  6. Investing

    Add Some Real Estate To Your Portfolio

    From REITs to owning your own home, find out how diversify your portfolio with real estate assets.
  7. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
  8. Financial Advisor

    Why Real Estate is a Good Fit for Older Investors

    Real estate investing can be a good fit for older investors. Here are three reasons why.
  9. Investing

    4 Key Factors That Drive The Real Estate Market

    The size of the real estate market make it an attractive sector for many investors, but understanding the factors that drive it is essential.
  10. Financial Advisor

    Top 4 Global Real Estate Mutual Funds

    Read about four of the best global real estate mutual funds, which invest in the securities of real estate companies or real estate investment trusts (REITs).
RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Commercial Real Estate

    Property that is used solely for business purposes. Examples ...
  3. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  4. Real Estate Limited Partnership - RELP

    A limited partnership entity organized to invest in real estate. ...
  5. Blanket Mortgage

    A mortgage which covers two or more pieces of real estate. The ...
  6. Commercial Real Estate Loan

    definition of a commercial real estate loan
Hot Definitions
  1. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  2. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  4. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
Trading Center